Navigating Amazon Acquisitions: Insights with Yael (Rouach) Cabilly

Oleg: Hi, welcome to Navigators. Today we're talking to Yael Cabilly, an expert in the world of Amazon Acquisitions. Yael, I was having an amazing conversation before I really want to share with you. So welcome, Yael.

Yael: Thank you, thanks for having me, Oleg. Nice to be here.

Oleg: Yeah, as usual, I would like to start with some introduction. At least, can you share how you ended up in the business of Amazon brands? What was your story?

Yael: Of course. I'm originally an attorney, a trademark attorney. In 2016, I started working with Amazon sellers, on the legal side, trademarks, and then suspensions. I saw that there were no attorneys in the e-commerce space, or very few back then. So, I decided to start a law firm focusing on e-commerce and intellectual property. At the law firm, we're a team of 16 people, we represented almost 7,000 clients over the years. So that's the law firm. In 2018, five years ago, many of the sellers we were in touch with wanted to exit the business. Back then, there were no investment banks in the e-commerce industry, there were several online brokers, most of them working with smaller businesses. My partner Michal, who brings the investment banking background and knowledge, and I thought that we should import the investment banking services to the e-commerce world and really help those sellers sell their business. So bigger businesses, the ones that are not under 100K but a million, two million, 10 million, 20 million, these businesses, you know, really hold their hand through the exit journey. So from the moment they decide that they want to exit someday, help them decide when is the right time, what to do to improve the business until you sell the business, how to increase the valuation, and then really take them through the process of going to market, showing your business to all the buyers, and then they would bid against each other until we get to the highest possible price. So this is how we started Fortunet five years ago. We worked with over 150 brands over the years, so you know, busy years as you know in the M&A space. In the last three-four years, and yeah, this is where we are today, a team of almost 40 people, doing just that, e-commerce exits.

Oleg: Yeah, nice to hear. I also joined Amazon from an absolutely different background back in 2016. So yeah, almost from the beginning.

Yael: Yeah, when you could just sell any spatula that you would put on Amazon would sell for millions.

Oleg: Right, right. Then it was much easier than now. So being an investment broker in e-commerce is a nice title to hear. As a daily job, what do you think are the trends going on? Because when we talked a few weeks ago, I was excited to hear a lot of information from you that I feel like doesn't exist in the space. Like, okay, we had some aggregators, and then the pandemic, it was up, down, and we heard a lot of bad news from many aggregators recently. So what are the trends? What's going on right now? Please share with us.

Yael: Yes, so we all know that the peak of this was in 2020. Thrasio became a unicorn, and then 40 aggregators came right after doing the same thing, "We buy Amazon brands." At some point, I think about 12 billion dollars were invested in the different aggregators, a lot of it in the larger ones, all that to buy FBA brands. What happened with time is that many of these aggregators were having a hard time managing those brands, some of the brands went down, whether it's because of the operation or because it's post-COVID and they bought it through COVID. So some of these businesses went down, some of the aggregators had problems with their debt covenants, and they could not keep up, and some of them simply do not exist anymore. I just spoke with a seller who told me that he tried to sell his business by himself now, and he sent the material to like 100 aggregators, and many of them, like the website doesn't even exist anymore. So I think that out of like 90 or 100 aggregators that were back then, today about 20, I would say, are actively buying Amazon businesses, maybe a little more, maybe 25. The rest are, or you know, many of them still exist, still operational but not acquiring right now. So kind of focusing on what they already bought, and some of them are not part of the game anymore. This week we heard about Benny Tago that is out, Perch that is out. So, you know, a lot of these names you've heard them before, and everybody was talking about, now it's kind of official recently, you know, in the past month. But the truth is that all of this happened about a year, a year and a half ago. So this is about, I'd say, at the beginning of 2022 is where things started to go wrong, and there were several difficult months. What we saw is that towards the second half of 2022, things started stabilizing. Today what we see now is not a bad market, not an excellent market, a regular market. So, you know, for those who were here in 2020, the hype is done, so we get from the arm to the stable market.

Oleg: Exactly, so from the high to the down to the kind of stable line. For almost a year, we see the same market.

Yael: So I know that there were several headlines recently, but this hitman actually referred to something that happened a long time ago. So for the last year, we see a very stable market. So the multiples went down, of course, from 2021, and it very much depends on what you're buying or what you're selling if you're a seller. If it's a very strong business, large enough that is growing and has nice margins, this business is often not sold to an aggregator but is sold to other types of buyers, and the multiples can be still very, very strong. If you're a small FBA brand, while in 2021, you know, you can even get 5x, 6x, some for some of them even 7x, today, you know, for a small FBA brand, and when I say small is like in the 1 million or even less, you usually don't get more than three times your annual profit. So it really depends where you are and what types of buyers you would be sold to.

Oleg: Yeah, but it's always been like separate markets, the small brands, it's usually acquired by people looking for retirement, right? This is what I heard, or aggregators at some point, but bigger brands, they usually, this is a strategic acquisition, right? So some brand wants to expand the portfolio or whatever.

Yael: Correct, yeah. So like in general, what do you like, give advice if someone is considering, okay, we want to start thinking about doing an exit, and what is like, start to focus on, start to think, some advice kind of?

Yael: Yeah, so like you said, you know, the larger ones, we are talking about strategic buyers, and we are talking about private equity firms. A lot of these deals are, you know, go to private equity for these acquisitions. The advantage, like I said, is the kind of, you know, the deal structure isn't one, and when it's a strategic, you know, they're often able to pay more because it's worth more for them. So for example, if I'm a toys company, a large retail toys company, and I want to get into e-commerce, and I already sell, I don't know, small bikes for kids, and then I find an online one, and this is exactly what we planned, so, you know, I would be able to invest a lot in that particular business. But the downside, I guess, is that this is the time that it takes. For these businesses, they are not aggregators, they don't do a 30 or 60-day due diligence or 60-day deals, back in the days, this is what aggregators were promising. It takes more time, and it takes some preparation. So very often, if I have a client that says, you know,
we want to sell in a year from now, we would start the process now. And during that time, what we do is first of all, we prepare you on the financial side. So, you know, what you want to do, whether through advisors or yourself, you want to start knowing your numbers and understand where you are compared to the benchmark. So, you know, you want to know that if your TACoS is terrible, you want to know if your cost of goods is relatively high compared to the average, and you want to make sure that your margins are high enough. So we usually do is give you an idea of where you are and what you could improve during that time. And sometimes you're actually able to, when you know what the problem is and you focus on that, you can often improve your margins dramatically. We had a business that improved from 18 to 26 margins just by understanding what the problem is and by kind of pushing the seller to make that change that the seller already knew that he needs to change. So, that's one thing, look at the financials, understand where you are, and improve the business. And during that time, you also want to warm up the buyers. So a strategic buyer that knows that this business is coming to market soon, they can prepare themselves internally, they can start looking at the business, and when the time comes, be more prepared and push that acquisition. It's a dating process, right? It takes...

Oleg: Yeah, absolutely, it's a dating. We have now a business, when is it coming to market? Is it coming? Like, they want to make sure that they're not missing it because they're really waiting for it. So, that's part of it, kind of warming the map, preparing, start discussions about evaluations, and then down the road, when you're ready, when you got to the size that you wanted, then sell the business. So these are the two main things. And I think that the third one, which is also very, very important, would be the legal preparation. So, without putting too much of my legal hat here, you know, when you want to sell the business, there are things you can do when it's just you alone with your three, five employees, versus selling the business to a corporation that would give you dozens of million dollars for this business, there are things you cannot do. So what we usually do is a kind of legal prep. We would tell you, listen, let's look at your business. For example, this insert you cannot use, this insert because it's not compliant, let's start a process of removing it, this can take like a year, or your trademark is covered for this category but not for that, so change that. We even created a tool, you can use it on the website that tells you exactly what the problems are in your business and what should be fixed. I think this is very important because the last thing you want is to go through an entire exit process and then at the end of the acquisition get a no, oh because your trademark wasn't covered in the right category. So, you know, you invested so much in it, you don't want to lose your exit just because of that. So these are the three things that we really recommend doing. Some of it you can do yourself, but the sooner you prepare, the better it is.

Oleg: Okay, nice. So basically, you said number one, make your numbers clear, it's the foundation of course.

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